The Travelers Indemnity Company of America v. Epperley

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

STATESVILLE DIVISION

CIVIL ACTION NO. 5:22-CV-00040-KDB-DSC

TRAVELERS COMMERCIAL

INSURANCE COMPANY,

TRAVELERS PROPERTY

CASUALTY INSURANCE

COMPANY, AND

THE TRAVELERS INDEMNITY

COMPANY OF AMERICA,

Plaintiffs,

v. ORDER

NATHAN JESTER AND NELSON

R. EPPERLEY,

Defendants.

THIS MATTER is before the Court on Defendant Jester’s Motion to Dismiss (Doc. No.

18), the parties’ associated briefs and exhibits, the Magistrate Judge’s Memorandum and

Recommendation (“M&R”) (Doc. No. 28), recommending that the Motion be denied, and

Defendant Jester’s objection to the M&R (Doc. No. 29). The Court has carefully considered the

motion, the parties' briefs, and other pleadings of record in this action. As discussed below, the

Court concludes after its de novo review that the M&R's recommendations should be adopted.

I. BACKGROUND

This action arises from Nathan Jester, individually as the Parent and Natural Guardian,

and as the Personal Representative of the Estate of K.R.J., a Minor v. Nelson Epperley, et. al.,

which is a lawsuit currently pending in the Court of Common Pleas in Greenville County, South

Carolina. In that action, Jester alleges that on April 20, 2019, he purchased a Club Car golf cart

with a Steeleng lift kit that had been installed by Epperley. About a month later, Jester was riding

in the front passenger seat and holding his eighteen-month-old son, K.R.J., on his lap when the

golf cart hit a pothole. This allegedly caused the bolt on the swing arm steering assembly to come

loose and allow the front wheel to break off. The golf cart flipped and K.R.J. was ejected into the

roadway. The lawsuit alleges that the bolt on the golf cart came loose due to improper

manufacturing and/or improper installation by Epperley and asserts various tort claims against

him.

On April 12, 2022, Plaintiffs filed a Complaint for a Declaratory Judgment in this Court

naming Epperley and Jester as Defendants. Plaintiffs seek a declaration that they had no duty to

defend or indemnify Epperley for the claims in the underlying lawsuit under the Automobile,

Homeowners, and/or Umbrella policies it had issued to him. Jester filed a Motion to Dismiss the

First Amended Complaint under Fed. R. Civ. Pro. 12(b)(1) and (6), which the Magistrate Judge

denied. See Doc. Nos. 18, 28. Jester has objected to the Magistrate’s decision and the matter is

now ripe for this Court’s consideration. See Doc. Nos. 29, 34.

II. STANDARD OF REVIEW

A district court may designate a magistrate judge to “submit to a judge of the court

proposed findings of fact and recommendations for the disposition” of dispositive pretrial

matters, including motions to dismiss. 28 U.S.C. § 636(b)(1). Any party may object to the

magistrate judge's proposed findings and recommendations, and the court “shall make a de novo

determination of those portions of the report or specified proposed findings or recommendations

to which objection is made.” 28 U.S.C. § 636(b)(1). However, “in the absence of a timely filed

objection, a district court need not conduct a de novo review, but instead must only satisfy itself

that there is no clear error on the face of the record in order to accept the recommendation” and

need not give any explanation for adopting the M&R. Diamond v. Colonial Life & Acc. Ins.

Co., 416 F.3d 310, 315 (4th Cir. 2005); Camby v. Davis, 718 F.2d 198, 200 (4th Cir. 1983). Nor

does the Court perform a de novo review when a party makes only “general and conclusory

objections that do not direct the court to a specific error in the magistrate's proposed findings

and recommendations.” Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982). After reviewing

the record, the court may accept, reject, or modify, in whole or in part, the findings or

recommendations made by the magistrate judge or recommit the matter with instructions. 28

U.S.C. § 636(b)(1).

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for “failure to state

a claim upon which relief can be granted” tests whether the complaint is legally and factually

sufficient. See Fed. R. Civ. P. 12(b)(6); Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937,

173 L. Ed. 2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167

L. Ed. 2d 929 (2007); Coleman v. Md. Court of Appeals, 626 F.3d 187, 190 (4th Cir. 2010),

aff'd, 566 U.S. 30, 132 S. Ct. 1327, 182 L. Ed. 2d 296 (2012). A court need not accept a

complaint's “legal conclusions, elements of a cause of action, and bare assertions devoid of

further factual enhancement.” Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d

250, 255 (4th Cir. 2009). The court, however, accepts all well-pled facts as true and draws all

reasonable inferences in Plaintiff's favor. See Conner v. Cleveland Cnty., 22 F.4th 412, 2022

WL 53977, at *1 (4th Cir. 2022); E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d

435, 440 (4th Cir. 2011). In so doing, the Court "must view the facts presented in the pleadings

and the inferences to be drawn therefrom in the light most favorable to the nonmoving party.”

Pa. Nat'l Mut. Cas. Ins. Co. v. Beach Mart, Inc., 932 F.3d 268, 274 (4th Cir. 2019). Construing

the facts in this way, a complaint must contain “sufficient factual matter, accepted as true, to

state a claim to relief that is plausible on its face.” Pledger v. Lynch, 5 F.4th 511, 520 (4th Cir.

2021) (quoting Ashcroft, 556 U.S. at 678). Thus, a motion to dismiss under Rule 12(b)(6)

determines only whether a claim is stated; “it does not resolve contests surrounding the facts,

the merits of a claim, or the applicability of defenses.” Republican Party v. Martin, 980 F.2d

943, 952 (4th Cir. 1992).

III. DISCUSSION

In his objection to the M&R Jester argues that: (1) Plaintiffs have failed to establish

standing; (2) this action is not ripe for adjudication because Jester has not obtained a state-court

judgment against Epperley; and (3) even if the Court has jurisdiction and the matter is ripe, the

Court should exercise its discretion and decline to assume jurisdiction. See Doc. No. 29. The Court

will address each argument in turn.

A. Standing

The principle of standing originates from Article III of the United States Constitution,

which “confines the federal judicial power to the resolution of 'Cases' and 'Controversies'”. See

TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203, 210 L. Ed. 2d 568 (2021) (quoting U.S.

CONST. art. III § 2). The standing inquiry asks, “whether the particular plaintiff is entitled to an

adjudication of the particular claims asserted.” Allen v. Wright, 468 U.S. 737, 752, 82 L. Ed. 2d

556, 104 S. Ct. 3315 (1984). The doctrine consists of both constitutional requirements and

“prudential principles.” Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 99, 60 L. Ed. 2d

66, 99 S. Ct. 1601 (1979). The “'irreducible constitutional minimum' of standing consists of three

elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the

challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial

decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016)

(citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561, 112 S. Ct. 2130, 119 L. Ed. 2d 351

(1992)) (internal citation omitted).

Jester argues that Plaintiffs have failed to establish constitutional standing to assert any

claim against him because “they did not allege – nor could they allege – that Mr. Jester had caused

them any present injury, or that Mr. Jester exposed them to any future risk of harm likely caused

by Mr. Jester that was imminent and substantial.” See Doc. No. 29. Jester maintains that any

potential injury to Plaintiffs flows exclusively from their relationship with Epperley. Yet this case

does not present an ordinary question of standing because Plaintiffs concede that Jester has not

directly harmed them in any way. Rather, Plaintiffs have explicitly alleged that Jester is only

named as a defendant because he is a necessary party under Fed. R. Civ. P. 19.

Rule 19(a) determines when a party qualifies as a “necessary party.” A party is necessary

when, “in that person's absence, the court cannot accord complete relief among existing parties.”

Fed. R. Civ. P. 19(a)(1)(A). Alternatively, a party is also necessary if it “claims an interest relating

to the subject of the action” and disposing of the action in the party's absence could: (i) “impair or

impede the [outside party's] ability to protect the interest” or (ii) “leave an existing party subject

to a substantial risk of incurring” inconsistent obligations. See Fed. R. Civ. P. 19(a)(1)(B). A party

qualifies as necessary under the Rule if it satisfies either Rule 19(a)(1)(A) or Rule 19(a)(1)(B). See

Home Buyers Warranty Corp. v. Hanna, 750 F.3d 427, 434 (4th Cir. 2014); Hiscox Dedicated

Corp. Mbr. v. Feld Entm't, Inc., 580 F. Supp. 3d 206, 211 (E.D. Va. 2022).

When, as here, an insurer brings a declaratory judgment action against its insured, the

underlying claimants are usually necessary parties to the insurance contracts. See Zurich Am. Ins.

Co. v. Covil Corp., No. 1:18-CV-932, 2019 U.S. Dist. LEXIS 117738 at 14 (M.D.N.C. July 16,

2019) (citing Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., No. 11-cv-393-wmc, 2011 U.S. Dist.

LEXIS 163939, at *1 n.1 (W.D. Wisc. Dec. 21, 2011); Emplrs. Mut. Cas. Co. v. Witham Sales &

Serv., Inc., No. 2:08-cv-233, 2009 U.S. Dist. LEXIS 109985, at *9 (N.D. Ind. Nov. 23, 2009)

(collecting cases); Winklevoss Consultants, Inc. v. Fed. Ins. Co., 174 F.R.D. 416, 418-19 (N.D. Ill.

1997). This is because the insured defendant is unlikely to adequately protect the injured party's

interests, there is the potential elimination of a source of funds to compensate the injured party,

and, if the injured party is not joined, it will not be bound by the court's decision, therefore

potentially leading to re-litigation, reduced judicial efficiency and the possibility of inconsistent

judgments. See Zurich Am Ins. Co., 2019 U.S. Dist. LEXIS 117738, at * 15.

Here, Jester has a substantial interest in the insurance proceeds that are ultimately the

subject of this litigation and thus deciding this action in his absence would impair his ability to

secure funds for any potential judgment against Epperley. It would be counterintuitive, to say the

least, for Jester to have to rely solely on Epperley—his opposing party in the underlying lawsuit—

to protect his interest in securing adequate funds to potentially compensate him. Judicial efficiency

also requires that Jester be bound by this Court’s judgment if he obtains a judgment against

Epperley to eliminate the risk of re-litigation and inconsistent judgments. As a result, Jester is a

necessary party under Rule 19(a)(1)(B).

Despite being a necessary party1, Jester maintains that Plaintiffs must establish independent

standing against him. However, this cannot be right. One of the main goals of Rule 19(a) is to

ensure judicial efficiency. Still, Jester asks this Court to, in effect, dismiss him from this matter

and allow him to relitigate this issue if he does not like the outcome. This is precisely the situation

Rule 19(a) seeks to avoid. In sum, Plaintiffs satisfy all the required elements of constitutional

1 Jester does not object to the Magistrate’s conclusion that he is a necessary party but rather argues

that conclusion is irrelevant because Plaintiffs do not have standing. See Doc. No. 29.

standing to assert claims against Epperley. As such, there is a controversy before this Court that is

not “hypothetical or abstract.” And, Jester is a necessary party to that controversy. Accordingly,

the Court has jurisdiction over this matter and will deny Jester’s Motion as to lack of standing.

B. Ripeness

Ripeness is a justiciability doctrine intended to prevent the courts from entangling

themselves in premature disputes. See, e.g., National Park Hospitality Ass'n v. Department of

Interior, 538 U.S. 803, 807-08, 123 S. Ct. 2026, 155 L. Ed. 2d 1017 (2003). “The ripeness doctrine

is drawn both from Article III limitations on judicial power and from prudential reasons for

refusing to exercise jurisdiction.” Id. (internal quotations and citations omitted). “[I]ts basic

rationale is to prevent the courts, through avoidance of premature adjudication, from entangling

themselves in abstract disagreements.” Trustgard Ins. Co. v. Collins, 942 F.3d 195, 199 (4th Cir.

2019) (quoting Abbott Lab'ys v. Gardner, 387 U.S. 136, 148-49, 87 S. Ct. 1507, 18 L. Ed. 2d 681

(1967)). Thus, a claim should be dismissed for lack of ripeness if the plaintiff has not yet suffered

injury and any future impact “remains wholly speculative.” Gasner v. Bd. of Supervisors, 103 F.3d

351, 361 (4th Cir. 1996). In determining ripeness, “[a] case is fit for judicial decision when the

issues are purely legal and when the action in controversy is final and not dependent on future

uncertainties.” Miller v. Brown, 462 F.3d 312, 319 (4th Cir. 2006) (internal citation omitted)

Jester argues that this action should be dismissed on ripeness grounds because he has not

yet obtained a judgment against Epperley. Therefore, any potential injury to the Plaintiffs is

hypothetical. However, this argument fails because Plaintiff’s duty to provide a defense to

Epperley is at issue, not just the duty to indemnify. While the Fourth Circuit has held that claims

for indemnity are not ripe for adjudication until a judgement has been entered, see A/S Ludwig

Mowinckles Rederi v. Tidewater Const. Co., 559 F.2d 928, 932-33 (4th Cir. 1977), the duty to

defend is distinct from the duty to indemnify.2 In fact, the caselaw relied on by Jester recognizes

the distinction between of the duty to defend and the duty to indemnify.

In Trustgard Ins. Co. v. Collins, 942 F.3d 195, 198 (4th Cir. 2019), upon which Jester relies

heavily, the Fourth Circuit expressed doubt as to whether a liability insurance company had

standing to obtain a declaratory judgment that it would owe no duty to guarantee a future judgment

against the insured. Id. at 199. However, in Trustgard Ins. Co the insurer’s duty to defend was not

at issue. Id. at 200 (“here, we do not face any claim about Trustgard's duty to defend the state

lawsuit, only to pay a resulting judgment.”). At issue in Trustgard was a surety agreement that

required the insurer to pay up to $1,000,000 for “any final judgment recovered against the insured

for public liability resulting from negligence in the operation, maintenance or use of motor

vehicles.” Id. at 198. The Court specifically noted it had “distinguished duty-to-defend cases that

addressed who was required to pay the costs of defending a suit prior to judgment” from suits

involving solely indemnification like the one at issue in Trustgard. Id. at 200.

Likewise, in Canal Ins. Co. v. 5M Transport, LLC, No. 1:21-00324, 2022 U.S. Dist. LEXIS

108392 (S.D. West Va. June 17, 2022), the insurer sought a declaration that it had “no duty to

defend or indemnify” the insured. Id. at *7. Ultimately, the court found that there were

“insufficient facts supporting the existence of an actual dispute over the duty to defend” because

there was no allegation that the insured tendered its defense to its insurer. Id. at 8. Yet the court

noted, “[t]he jurisdictional analysis for each of these subjects of declaratory relief (duty to defend

2 Both North Carolina and South Carolina law recognize this distinction. See Sloan Constr. Co. v.

Cent. Nat’l Ins. Co., 236 S.E.2d 818, 820 (S.C. 1977) (“The agreement to defend contemplates the

rendering of services” while indemnification “contemplates merely the payment of money.”);

Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 377 (N.C. 1986) (“[T]he

insurer’s duty to defend the insured is broader than its obligation to pay damages incurred by

events covered by a particular policy.”)

and duty to indemnify) is unique from a timing perspective.” Id. at 7. When “the subject is the duty

to defend, jurisdiction becomes available sooner.” Id. at *8.; see also Molex Inc. v. Wyler, 334 F.

Supp. 2d 1083, 1086 (N.D. Ill. 2004) (”In the insurance context, the general rule is that an actual

controversy exists where an insured alleges that its insurer has a duty to defend him against

potential liability in an underlying action.”); Steven Plitt et al., 16A Couch on Ins. § 227:29 (”It

has been stated that where the insurance policy contains a defense obligation and the insured has

called upon the insurer to assume its defense, that dispute is sufficiently immediate to allow the

court to issue a declaration”).

Here, Plaintiffs’ duty to defend is at issue. Plaintiffs allege that are they currently defending

a lawsuit that they have no duty to defend. See Doc. Nos. 13, p. 12; 33, p. 13.3 Epperley disagrees.

Therefore, an actual controversy exists, and the matter is ripe for adjudication. The Court will

therefore deny the Motion as to ripeness.

C. Abstention

Lastly, Jester argues that even if the Court does have jurisdiction over this matter, it

should exercise its discretion and decline to assume jurisdiction. Under the Declaratory

Judgment Act, a district court, in “a case of actual controversy within its jurisdiction . . . may

declare the rights and other legal relations of any interested party seeking such declaration.” 28

U.S.C. § 2201(a) (emphasis added). This Act gives federal courts discretion to decide whether

to declare the rights of litigants. Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S. Ct. 2137,

132 L. Ed. 2d 214 (1995). Rather than grant litigants a right to judgment in their case, it merely

permits the courts to hear those cases. Id. at 287. Whether exercising this jurisdiction is

3 On December 7, 2022, Plaintiffs filed a Second Amended Complaint. See Doc. No. 33. Having

reviewed the Second Amended Complaint, and absent any assertion by the parties to the contrary,

the Court finds that it does not materially alter the arguments before the Court.

appropriate must be “informed by the teachings and experience [of the courts] concerning the

functions and extent of federal judicial power.” Id. Put another way, “[i]n the declaratory

judgment context, the normal principle that federal courts should adjudicate claims within their

jurisdiction yields to considerations of practicality and judicial administration.” Id. at 288.

In declaratory judgment actions, courts must consider whether “federalism, efficiency,

and comity” counsel against exercising jurisdiction when an ongoing proceeding in state court

overlaps with the federal case. Penn-Am. Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004).

In making this determination, courts look to (1) the state's interest in having its own courts decide

the issue; (2) the state courts' ability to resolve the issues more efficiently than the federal courts;

(3) the potential for unnecessary entanglement between the state and federal courts based on

overlapping issues of fact or law; and (4) whether the federal action is mere forum-shopping.

See Penn-Am. Ins. Co., 368 F.3d at 412 (citing United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488,

493-94 (4th Cir. 1998) (quoting Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377

(4th Cir. 1994), abrogated in part on other grounds by Wilton, 515 U.S. 277, 115 S. Ct. 2137,

132 L. Ed. 2d 214)).

Having weighed these factors, the Court finds that abstention would be inappropriate.

First, South Carolina has no weighty interest in deciding this insurance dispute and this Court

can efficiently resolve this matter. Also, there is no novel or unique question of state law at issue

in this declaratory judgment action. Second, a determination on the merits will not result in

unnecessary entanglement on any overlapping issues of fact or law. The underlying wrongful

death action concerns whether there was any negligent manufacturing or instillation of the lift

kit on the golf cart involved in the fatal accident. In contrast, the issue here is whether liability

arising from a golf cart accident on a public road falls within the intended scope of Epperley’s

insurance coverage. While there will of course be some factual overlap between the suits, the

issues are fundamentally different, and any overlap would therefore be inconsequential. And

lastly, no evidence suggests that the filing of this suit stems from forum shopping. Simply put,

abstention is the exception, not the rule and the Court finds no reason to abstain here. Therefore,

the Court will not abstain and will assume jurisdiction over this matter.

NOW THEREFORE IT IS ORDERED THAT:

1. The Court adopts the findings and conclusions of the M&R and accepts its

recommendation to deny Jester’s motion;

2. Jester’s Motion to Dismiss (Doc. No. 18) is DENIED; and

3. This matter shall proceed towards a decision on the merits absent a voluntary

resolution of Plaintiffs’ claims among the parties.

SO ORDERED ADJUDGED AND DECREED.

Signed: December 19,

Kenneth D. Bell Cy,

United States District Judge i f

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